Principles of Finance
ACF 214 – Principles of Finance
Weekly coverage: S. No. | Week | Coverage | 1 | Week 1-2 | Project Evaluation Criteria | 2 | Week 3 | EVA (Making Sure Managers Maximize NPV) | 3 | Week 4-6 | Risk, Return and the Cost of Capital | 4 | Week 7-9 | Corporate Financing and Capital Structure | 5 | Week 10 | Payout Policy | 6 | Week 11 | The Efficient Markets Hypothesis and Behavioural Finance | 7 | Week 12-15 | Introduction to Option Pricing Theory |
Coverage:
1. Project Evaluation Criteria
Market-based project evaluation criteria, Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI) Relevant costs in capital budgeting, Break-even, sensitivity and scenario analysis, the concept of Equivalent Annual Benefit
2. EVA (Making Sure Managers Maximize NPV) Sources of positive NPV, Reasons why managers depart from the shareholder-value maximization principle, Economic Value Added (EVA)
3. Risk, Return and the Cost of Capital
Relationship between risk and return, Standard deviation of a portfolio, Efficient frontier, Market portfolio, CAPM. Beta -Practicalities of estimation, Asset betas. Weighted average cost of capital (WACC)
4. The Efficient Markets Hypothesis and Behavioural Finance
Evolution of asset prices in an efficient market, Theoretical foundations and forms of EMH, Behavioural and empirical challenges to EMH, Some explanations for the EHM violations, The lessons of market efficiency
5. Corporate Financing and Capital Structure
Theory of capital structure irrelevance, Tax-related reasons why capital structure matters, Other reasons why capital structure matters -Bankruptcy costs, Agency costs of debt (asset substitution, underinvestment) Towards the static trade-off and pecking order theory
6. Payout Policy
Theory of dividend policy irrelevance, Reasons why dividend policy actually matters
7. Introduction to Option Pricing Theory Payoffs from options, the binomial
Weekly coverage: S. No. | Week | Coverage | 1 | Week 1-2 | Project Evaluation Criteria | 2 | Week 3 | EVA (Making Sure Managers Maximize NPV) | 3 | Week 4-6 | Risk, Return and the Cost of Capital | 4 | Week 7-9 | Corporate Financing and Capital Structure | 5 | Week 10 | Payout Policy | 6 | Week 11 | The Efficient Markets Hypothesis and Behavioural Finance | 7 | Week 12-15 | Introduction to Option Pricing Theory |
Coverage:
1. Project Evaluation Criteria
Market-based project evaluation criteria, Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI) Relevant costs in capital budgeting, Break-even, sensitivity and scenario analysis, the concept of Equivalent Annual Benefit
2. EVA (Making Sure Managers Maximize NPV) Sources of positive NPV, Reasons why managers depart from the shareholder-value maximization principle, Economic Value Added (EVA)
3. Risk, Return and the Cost of Capital
Relationship between risk and return, Standard deviation of a portfolio, Efficient frontier, Market portfolio, CAPM. Beta -Practicalities of estimation, Asset betas. Weighted average cost of capital (WACC)
4. The Efficient Markets Hypothesis and Behavioural Finance
Evolution of asset prices in an efficient market, Theoretical foundations and forms of EMH, Behavioural and empirical challenges to EMH, Some explanations for the EHM violations, The lessons of market efficiency
5. Corporate Financing and Capital Structure
Theory of capital structure irrelevance, Tax-related reasons why capital structure matters, Other reasons why capital structure matters -Bankruptcy costs, Agency costs of debt (asset substitution, underinvestment) Towards the static trade-off and pecking order theory
6. Payout Policy
Theory of dividend policy irrelevance, Reasons why dividend policy actually matters
7. Introduction to Option Pricing Theory Payoffs from options, the binomial